Yen weakens to five-year low on policy outlook; Aussie declines

Currency report

The yen weakened to a five-year low versus the dollar amid speculation the Bank of Japan will continue unprecedented stimulus while the Federal Reserve pares quantitative easing as the U.S. economy recovers.

Japan’s currency dropped for a fourth day before the U.S. announces jobless claims today and as Bank of Japan minutes showed one board member said a slowdown in growth could represent a downward shift in trend. Turkey’s lira fell to a record as Prime Minister Recep Tayyip Erdogan replaced 10 ministers amid a corruption probe that led three ministers to resign yesterday. Australia’s dollar declined against all its major peers as Chinese stocks slid to the least since August.

“The fact that BOJ members are concerned that improvement in growth, jobs, and consumer prices may not be as robust as before signals they will take some kind of measures going forward,” said Takahiro Sekido, who worked at the BOJ before joining Bank of Tokyo-Mitsubishi UFJ Ltd. as a Japan strategist. “Dollar-yen could test 105 as economic data in the U.S. continue to improve.”

The yen fell 0.4 percent to 104.76 per dollar at 6:33 a.m. New York time, after reaching 104.84, the weakest level since October 2008. Japan’s currency dropped 0.5 percent to 143.47 per euro, after sliding to a five-year low of 143.54. The 17-nation shared currency was little changed at $1.3695.

The Topix index of Japanese shares closed at the highest level since 2008 as the currency weakened. Financial markets including those in Australia, New Zealand, Hong Kong, Germany and the U.K. are closed today.

Biggest Losers

The yen lost 17 percent against the dollar this year, the biggest decline among its 16 major peers after the South African rand’s 18 percent drop, amid speculation the BOJ will continue unprecedented stimulus that debases the currency, while the Fed pares quantitative easing as the U.S. economy recovers.

BOJ board members agreed to examine risks and adjust policy as needed, according to minutes of their Nov. 20-21 meeting released today. One member said anticipation of more easing could lead to economic instability.

Japan’s central bank is buying more than 7 trillion yen of government bonds each month in an attempt to end 15 years of deflation. Twenty seven of 35 economists surveyed by Bloomberg News this month forecast Japan’s central bank will add stimulus after March.

Jobless Claims

The dollar jumped 2 percent against the yen since Dec. 17, the day before the Fed said it plans to cut monthly asset purchases in January to $75 billion from $85 billion. Policy makers will probably reduce bond purchases in $10 billion increments over the next seven meetings before ending the program in December 2014, economists said in a Bloomberg survey published Dec. 19.

Applications for U.S. unemployment benefits probably fell to 345,000 in the week ended Dec. 21, from 379,000 the previous week, according to the median estimate of economists in a Bloomberg News survey. Monthly employment figures are due on Jan. 10, with the jobless rate forecast by analysts to remain at a five-year low of 7 percent.

The Standard & Poor’s 500 Index closed at a record high on Dec. 24 after data on U.S. durable goods and new homes sales exceeded analyst estimates.

“We may see the U.S. jobless claims data move the market as traders in New York start to come back from holiday,” said Kengo Suzuki, the chief currency strategist at Mizuho Securities Co. in Tokyo. “Currency traders will keep an eye on stock moves today.”

Turkish Resignations

The Turkish lira touched a record-low 2.1038 per dollar and the Borsa Istanbul 100 Index headed for its lowest close since August 2012. Environment and Urban Works Minister Erdogan Bayraktar, an associate of Prime Minister Erdogan for two decades, resigned and called for the premier to step down too. Erdogan responded by reshuffling his cabinet.

The lira is this month’s worst-performer in emerging Europe and Africa, having fallen 3.8 percent, even after Turkey’s central bank said Dec. 24 it would sell at least $6 billion through the end of January and make it more costly for lenders to park foreign currencies in its coffers.

Australia’s dollar slumped 0.4 percent to 88.88 U.S. cents, and fell 0.2 percent to NZ$1.0888, as China’s stocks declined amid investor disappointment the government didn’t take further measures to ease a cash crunch. The Shanghai Composite Index lost 1.6 percent to 2,073.10 at the close, the lowest level since Aug. 23.